More complications for some employers with arbitration agreements

The ground keeps shifting for California employers seeking to enforce arbitration agreements, with each new ruling from the U.S. Supreme Court and California Supreme Court redefining who is subject to arbitration agreements and class action waivers.

The U.S. Supreme Court’s latest ruling on the Federal Arbitration Act focuses on “transportation workers” and could lead to a new crop of employees seeking to avoid arbitration agreements by claiming to be so-called transportation workers, regardless of industry.

In Bissonnette v. LePage Bakeries Park St., LLC, the court resolved a circuit split regarding an exemption to the FAA’s general rule that arbitration agreements are “valid, irrevocable, and enforceable, save upon grounds as exist at law or in equity for the revocation of any contract.” See 9 U.S.C. § 2. Section 1 of the FAA exempts from its broad sweep the employment contracts of “seamen, railroad employees, or other classes of workers engaged in foreign or interstate commerce.”

The exemption was written into the FAA when it was enacted nearly a century ago because other federal laws provided for mediation, arbitration, and other grievance procedures for seamen and railroad workers. See Cir. City Stores, Inc. v. Adams, 532 U.S. 105, 121 (2001). But now, other employees are seeking to use the exemption to avoid arbitration agreements and force class action litigation.

One of these efforts came from a pair of franchisees who distributed baked goods in Connecticut. The distributors in Bissonnette alleged that they spent at least 40 hours per week delivering baked goods, but they also were responsible for locating new retail outlets, advertising, promotional displays, and replacing expired products. In other words, they had a lot of non-transportation duties.

The district court concluded that the broader responsibilities belied their claim to be “transportation workers,” and therefore, ordered the case to arbitration. The 2nd Circuit affirmed and held that an employee could only be exempt from the FAA if the employer was in the “transportation industry” – i.e., a business that “pegs its charges chiefly to the movement of goods or passengers, and the industry’s predominant source of commercial revenue is generated by that movement.” But the Supreme Court rejected that analysis.

It held that a worker need not be in the transportation industry to assert the “transportation worker” exemption. Instead, the analysis focuses on whether the worker plays “a direct and necessary role in the free flow of goods across borders.”

The Supreme Court rejected the industry-focused test because it said the test would result in ambiguities and the need for mini-trials to determine whether an employer was in the transportation industry or not. It hypothesized that the test would result in “arcane riddles” regarding, for example, whether a pizza delivery company derives its revenue mainly from pizza or delivery (ignoring the unlikelihood of a pizza business deriving more revenue from delivery than from the pizza being delivered). The court posited the same problem for retailers who offer delivery of goods.

But to the extent that the court’s rule avoids the need for mini-trials over the employer’s revenue model and industry, it may give new life to some other employees’ claims that they are exempt from arbitration agreements and class waivers, even if they are not drivers or others actually moving goods or people from one location to another.

Just two years ago, the Supreme Court ruled that the transportation worker exemption applies to workers who load or unload interstate shipments, not just individuals moving the goods or people across state lines. In Sw. Airlines Co. v. Saxon, 596 U.S. 450, 457 (2022), the court held that an airline ramp supervisor was “engaged in foreign or interstate commerce” because she was loading and unloading baggage, mail, and cargo.

Lots of other workers in other industries load and unload goods moving across interstate borders, so the question of whether someone is engaged in interstate commerce – and might be a transportation worker – is likely more fact-specific than the court acknowledged. This could result in the need for evidence and the mini-trials that the court sought to avoid by implementing the Bissonnette definition.

For California employers, it just further complicates the class and collective action landscape, which is already splintered along class and Private Attorneys General Act lines and has whipsawed in terms of the scope of enforceability in the last couple of years.

Some employers may need to gird themselves for disputes over not just the unenforceability of arbitration agreements against PAGA actions now but also against arguments that some subclass or another is made up of “transportation workers” who can avoid their arbitration agreements and class action waivers. Because one thing is for sure: the battle by workers to avoid arbitration agreements is unlikely to end any time soon.